CFA CFA General GIPS – Level 3

GIPS – Level 3

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    • sankrutimehta
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      Here I am back with my nerdy brain..
      I just dumped my Level 3 books and came across my GIPS cheatsheet (which i used to study before exam). Sharing the same below.

      GIPS Provisions

      0. Fundamentals of Compliance
      Several core principles create the foundation for the GIPS standards, including properly defining the firm, providing compliant presentations to all prospective clients, adhering to applicable laws and regulations, and ensuring that information presented is not false or misleading. Two important issues that a firm must consider when becoming compliant with the GIPS standards are the definition of the firm and the firm’s definition of discretion. The definition of the firm is the foundation for firm-wide compliance and creates defined boundaries whereby total firm assets can be determined. The firm’s definition of discretion establishes criteria to judge which portfolios must be included in a composite and is based on the firm’s ability to implement its investment strategy.

      1. Input Data
      Consistency of data input used to calculate performance is critical to effective compliance with the GIPS standards and establishes the foundation for full, fair, and comparable investment performance presentations. For period beginning on or after 1 January 2011, all portfolios must be valued in accordance with the definition of fair value and the GIPS Valuation Principles.

      2. Calculation Methodology
      Achieving comparability among investment management firms’ performance presentations requires uniformity in methods used to calculate returns. The GIPS standards mandate the use of certain calculation methodologies to facilitate comparability.

      3. Composite Construction
      A composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy. The composite return is the asset-weighted average of the performance of all portfolios in the composite. Creating meaningful composites is essential to the fair presentation, consistency, and comparability of performance over time and among firms.

      4. Disclosure
      Disclosures allow firms to elaborate on the data provided in the presentation and give the reader the proper context in which to understand the performance. To comply with the GIPS standards, firms must disclose certain information in all compliant presentations regarding their performance and the policies adopted by the firm. Although some disclosures are required for all firms, others are specific to certain circumstances and may not be applicable in all situations. Firms are not required to make negative assurance disclosures.
      One of the essential disclosures for every firm is the claim of compliance. Once a firm meets all the requirements of the GIPS standards, it must appropriately use the claim of compliance to indicate compliance with the GIPS standards. The 2010 version of the GIPS standards includes a revised compliance statement that indicates if the firm has or has not been verified.

      5. Presentation and Reporting
      After constructing the composites, gathering the input data, calculating returns, and determining the necessary disclosures, the firm must incorporate this information in presentations based on the requirements in the GIPS standards for presenting investment performance. No finite set of requirements can cover all potential situations or anticipate future developments in investment industry structure, technology products, or practices. When appropriate, firms have the responsibility to include in GIPS-compliant presentations information not addressed by the GIPS standards.

      GIPS Valuation Principles
      •Investments should be valued, in order of preference, by: 1.Objective, observable, unadjusted quoted market prices for identical investments in active markets
      2.Objective, observable quoted market prices for similar investments in active markets
      3.Quoted prices for identical or similar investments in markets that are not active
      4.Market-based inputs other than quoted prices that are observable for the investment
      5.Subjective, unobservable inputs

      GIPS Advertising Guidelines
      •Compliance claims may be made without presenting the compliant presentation
      •Firms must use the prescribed wording for compliance claims
      •Firms that state a claim of compliance and present performance must include on of the following:
      1.1-, 3-, and 5-year annualized composite returns through most recent period
      2.Period-to-date composite returns in addition to 1-, 3-, and 5-year annualized composite returns through the same period of time as presented in the presentation
      3.Period-to-date composite returns in addition to five years of annual composite returns calculated through the same period of time as presented in the presentation

      Verification
      Definition: A process in which an independent expert assesses a firm’s policies and procedures for constructing composites and calculating and presenting information in compliance with the GIPS standards.
      •An independent verifier assesses whether:
      1.The firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis
      2.The firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards
      •A single verification report is issued for the entire firm, not for individual composites

      Do let me know if this was useful!! In with case you could get further glimpses in a Nerd’s Diary!! :p

      I will keep coming with further nerdy blogs!! Till the next time..Keep Nerding

    • vincentt
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      I’m sure this will be useful when I start my L3 revision. Thank you for your time to post this @sankrutimehta

    • christine
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      Nice sharing @sankrutimehta! 😉

    • RaviVooda
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      @sankrutimehta, will be surely useful for us while studying for L3,

    • sankrutimehta
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      @RaviVooda, @Christine, @Vincentt, @Sophie: thanks for the enthu guys..posts will keep coming

    • Sophie Macon
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      No worries, we can’t wait to read more @sankrutimehta!

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